FDI moves now official, no signs of reforms abating

Last Updated: Fri, Sep 21, 2012 03:33 hrs

Undeterred by protests from the Opposition and some of its allies, the UPA government on Thursday carried out its decision on FDI reforms and offered no signs of a rollback of the rise in diesel prices.

The government is set to go ahead with its reform agenda - be it restructuring of loans to state electricity boards or a hike in the cap on FDI (foreign direct investment) in the insurance sector - though it postponed the Cabinet meeting scheduled for tomorrow.

Prime Minister Manmohan Singh, who initiated the first large-scale economic reforms in the country back in 1991 as the finance minister, has resolved to show the government's commitment to the recent reforms and is likely to convey the positive side of the measures in an address to the people tomorrow.

Even a truce between the government and Vodafone appears in sight, which would end the prolonged battle between the two sides on the capital gains tax issue. Analysts say that would boost investor sentiment.

  • All five notifications on recent FDI decisions issued
  • No move towards partial withdrawal of fuel price hikes
  • Next on agenda are reforms in power sector and a hike in the FDI cap in insurance 
  • Finance ministry, Vodafone appear to be smoking peace pipe on tax issue
  • Kelkar panel report on fiscal consolidation may be uploaded soon

The finance ministry is likely to put the Kelkar committee report on fiscal consolidation in the public domain soon, showing its commitment to correct the state of public finances.

The government on Thursday issued all five notifications on FDI reforms cleared by the Cabinet last week. With that, up to 51 per cent FDI in multi-brand retail, relaxed conditions for 100 per cent FDI in single-brand retail, clarity on foreign investment in power trading, 49 per cent FDI for foreign airlines in Indian carriers and a hike in the FDI limit in certain category of media, such as DTH, have been permitted.

The notifications were issued a day before the Trinamool Congress ministers were likely to submit their resignation letters to the Prime Minister. Trinamool chief Mamata Banerjee termed the notifications "shocking".

News agency PTI said the Prime Minister was likely to explain to the nation the reasons behind the recent FDI reforms, the hike in diesel prices by Rs 5 a litre and the capping of subsidised LPG cylinders at six a year per household. The thrust of the message would be on the benefits the steps would entail.

The Prime Minister's explanation could be in the form of a written message or a televised address, PTI said, quoting sources.

Officials said the government would soon come out with a plan for the financial restructuring of power distribution companies suffering huge losses. The scheme would lay down certain mandatory conditions on the state governments, including conversion of loans to equity and ushering in private participation in distribution.

The Centre would do its bit by putting in place a transitional finance mechanism. A proposal, which involves the issuance of bonds for half the short-term liabilities of state electricity boards backed by the Centre and rescheduling of the remaining debts, is likely to be taken up in the next Cabinet meeting, which may take place on Tuesday.

A proposal to hike FDI in private insurers to 49 per cent from 26 per cent may not come up in the meeting but is on the agenda and is likely to feature in the next meeting. In fact, Parliament's standing committee on finance had recommended retaining the FDI cap in the insurance sector at 26 per cent.

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